We recently mentioned a new record on the average credit card interest rate hitting 19.04%. Now comes another high point: According to the NY Fed, household debt is now $16.5 trillion, up 2.2%. Mortgage debt amounts to a large chunk of the total volume, at $11.7 trillion, but keep an eye on credit card debt. Records are meant to be broken, but watch out!
Dwarfing the 8.2% inflation rate is the credit card revolving debt growth rate, at 15%. In other words, inflation proliferated, but revolving debt grew nearly twice as fast. It’s all about the consumer household budget, we say. Yes, financial institutions love it when balances grow, but when balances grow because people are leaning on their credit cards, watch out for the ensuing risk.
With Debt Growing Faster than Inflation, People Need their Credit Cards
Liberty Street Economics, a NY Fed blog post site, suggests:
These balance increases, practically across the board, are not surprising given the strong levels of nominal consumption we have seen. With prices more than 8 percent higher than they were a year ago, it is perhaps unsurprising that balances are increasing.
Credit Card Delinquency is Low but Rising, Also
While the NY Fed’s report aims at balances, there is also a glimmer of growing delinquency volumes. They are generally still low, but a few basis points here and there predict a growing issue.
For the three quarters of 2022 versus 2021, serious delinquencies, 90+ days past due or more, nearly doubled on mortgage debt, from 0.27% to 0.50%. Delinquent auto loans climbed from 1.57% to 2.02%; Credit cards increased from 3.24% to 3.69%.
With the holiday season soon upon us, brace yourself for a credit storm.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.
